Is it Better to Inherit Real Estate?

20 Dec

Metro®Boston, Publication Date: December 14, 2011
By Attorney George Warshaw

Many people often want to give their home to their children before they die. It’s certainly simpler but it sometimes has unintended tax consequences. (See GeorgeintheMetro.com for last week’s story).

There is an important tax rule regarding inheriting real estate that could save you a bundle of taxes.

When a person dies, the fair market value of any real estate owned must be determined. If you inherit property, you inherit it at its fair market value.

Inherit a house worth $500,000, sell it a month later for $500,000, and there is no taxable gain. But what if your parents only paid $100,000 for it 20 years ago?

It matters not what your parents paid if you inherit it, but it may matter if you receive it as a gift during their lifetimes.

The basic tax rule is this: you inherit property at fair market value; but when you receive it as a gift, you acquire it at the same cost+ tax basis as the giver had in the property. Sell it later for more than cost+ and you could pay a tax that could have been avoided.

So before gifting real estate: always consult your tax advisor or attorney. The foregoing is not intended as legal advice.

© 2011 George Warshaw. All Right Reserved.

George Warshaw is a real estate attorney and author. He represents buyers and sellers of homes and condos in Massachusetts, and prepares wills, trusts, and estate plans. George welcomes new clients and questions at george.warshaw@warshawlaw.com.  

Legal Advice: Laws, and court decisionsinterpreting them, change frequently and this article is not updated as laws change. The content and information contained in this article is neitherintended as legal advice nor shall establish an attorney-client relationship.

Before making any legal decision, consult an attorney to see how the foregoing may apply to your circumstances.

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